The Hongkong and Shanghai Banking Corporation Limited

Transcription

1 The Hongkong and Shanghai Banking Corporation Limited New Zealand Disclosure Statement 30 June 2016

2 Disclosure Statement For the Six Months Ended 30 June 2016 Contents Page General Disclosures 2 Conditions of Registration 6 Interim Financial Statements 10 Notes to and forming part of the Interim Financial Statements 15 Directors' and New Zealand Chief Executive Officer s Statements 33 Independent Auditor s Review Report 34

3 General Disclosures Registered Bank The Hongkong and Shanghai Banking Corporation Limited ( HBAP ) 1 Queen's Road Central Hong Kong SAR HBAP was incorporated in Hong Kong in 1866 under the Laws of Hong Kong. New Zealand Branch The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch ( Branch ) is defined as the New Zealand business of HBAP (overseas incorporated bank). New Zealand Head Office: 1 Queen Street Auckland New Zealand New Zealand The New Zealand ( ) is the New Zealand operations of HBAP and all New Zealand incorporated subsidiaries of HBAP. The entities that have been considered for aggregation to form the are detailed in the Notes to the financial statements, Note 1: Statement of Accounting Policies. Overseas The Overseas ( HBAP Group ) includes all entities consolidated for the purposes of public reporting of Group financial statements in Hong Kong including HBAP and its subsidiary and associated companies. Ultimate Holding Company The ultimate holding company of HBAP is: HSBC Holdings plc 8 Canada Square London E14 5HQ United Kingdom Access to Parental Disclosures The most recent publicly available financial statements of HBAP Group and HSBC Holdings plc ( Group ) can be found at HSBC Holdings plc s website, Ranking of Local Creditors in a Winding-up Under Section 265(1) (db) of the Companies Ordinance of the Hong Kong SAR which HBAP is subject to, in the event of a winding up of HBAP, there shall be paid in priority to all other unsecured debts the aggregate amount held on deposit, up to a maximum of HKD 500,000, to each depositor on deposits placed in Hong Kong, regardless of the geographic location of the depositors. No other material legislative or regulatory restrictions in Hong Kong SAR exist which would subordinate the claims of any class of New Zealand branch unsecured creditors on the assets of HBAP to those of any other class of unsecured creditors of HBAP in a winding up of HBAP. Guarantee Arrangements No material obligations of HBAP that relate to the Branch are guaranteed as at the date of signing this Disclosure Statement. Government Guarantee No obligations of HBAP that relate to the Branch are guaranteed under a government guarantee as at the date of signing this Disclosure Statement. 2

4 General Disclosures (continued) Other Material Matters There are no material matters that, if disclosed, would adversely affect the decision of a person to subscribe for Debt Securities of which HBAP and the is the issuer. Pending Proceedings and Arbitration HBAP is named in and is defending legal actions in various jurisdictions arising from its normal business. Auditor New Zealand Overseas PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers Tower 22nd floor 188 Quay Street Prince s Building Auckland 10 Chater Road New Zealand Hong Kong SAR New Zealand Chief Executive Officer/Responsible Person The New Zealand Chief Executive Officer, Christopher David Gosse Russell, has been authorised in writing by each Director named below, in accordance with section 82 of the Reserve Bank of New Zealand Act 1989, to sign this Disclosure Statement on the Directors behalf. Accordingly, Christopher David Gosse Russell is a Responsible Person under the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014 (as amended). Christopher David Gosse Russell Chief Executive Officer New Zealand Branch. Joined the HSBC Group in 2005 and resides in New Zealand. He has a Master of Business Administration from the University of South Australia. Communications addressed to the responsible person may be sent to: c/o The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch PO Box 5947 Wellesley Street Auckland 1141 New Zealand Dealings with Responsible Person No dealings with any responsible person or director, the immediate relative or professional associate of a responsible person or director, have been entered into by HBAP and the other than those given in the ordinary course of business. Board of Directors of HBAP The Directors of HBAP at the time this Disclosure Statement was signed are: Stuart Thomson Gulliver (Chairman) Masters Degree in Jurisprudence, Worcester College, Oxford University, 1980 Executive Director and Group Chief Executive, HSBC Holdings plc Peter Wong Tung Shun (Deputy Chairman and Chief Executive) Bachelor of Arts, Indiana University, 1974; Master of Business Administration, Indiana University, 1976 Master of Science, Indiana University, 1978 # Laura Cha May Lung, GBS (Deputy Chairman) Bachelor of Arts, University of Wisconsin-Madison, 1972; Juris Doctor, University of Santa Clara Law School, 1982; and admitted to practice in the State of California and in Federal Courts, 1983 Company Director 3

5 General Disclosures (continued) Board of Directors of HBAP (continued) # * Zia Mody (Deputy Chairman) Master of Laws, Harvard University, 1979; Bachelor of Arts (Law), Cambridge University, 1978 Partner, AZB & Partners # * Graham John Bradley Bachelor of Arts, LLB (Hons I) from Sydney University, 1971 LLM, Harvard University, 1973 Company Director # Dr Christopher Cheng Wai Chee, GBS, OBE Bachelor of Business Administration, University of Notre Dame, 1969; Master of Business Administration, Columbia University, 1979; Doctorate in Social Sciences honoris causa, The University of Hong Kong, 2011 Chairman, Wing Tai Properties Limited # Dr Raymond Ch ien Kuo Fung, GBS, CBE Bachelor of Arts, Rockford College, 1973; Master of Arts and Doctor of Philosophy (Economics), University of Pennsylvania, 1976 and 1978 Independent Non-executive Chairman, Hang Seng Bank Limited # Irene Lee Yun-lien Bachelor of Arts (Distinction) in History of Art from Smith College, Northampton, Massachusetts, USA, 1974 Member of Honourable Society of Gray s Inn, UK, 1977 Barrister-at-Law in England and Wales, 1977 Chairman, Hysan Development Company Limited Rose Lee Wai Mun Bachelor of Business Administration, University of Hawaii, 1977 Vice-Chairman and Chief Executive, Hang Seng Bank Limited ^ Victor Li Tzar Kuoi B.Sc, and M.Sc., Stanford University, 1986 Managing Director and Deputy Chairman of Cheung Kong Property Holdings Limited, and Group Co-Managing Director and Deputy Chairman of CK Hutchison Holdings Limited # John Robert Slosar Bachelor degree in Economics from Columbia University, 1978 Bachelor degree in Economics, subsequently M.A. from University of Cambridge, 1980 Chairman, John Swire & Sons (H.K.) Limited # Dr Rosanna Wong Yick-Ming, DBE B.Soc.Sc, University of Hong Kong 1975; MSW, University of Toronto 1979; M.Sc. in Social Policy and Planning, London School of Economics and Political Science, University of London 1983; Diploma in Executive Management, Chinese University of Hong Kong 1985; M.A. and Doctor Degree in Sociology, University of California, Davis 1993 and 1997 Executive Director, The Hong Kong Federation of Youth Groups # Marjorie Yang Mun Tak, GBS B.Sc. in Mathematics, Massachusetts Institute of Technology, 1974; and Master of Business Administration, Harvard Business School, 1976 Chairman, Esquel Holdings Inc. # * Tan Sri Dr Francis Yeoh Sock Ping, CBE Bachelor of Science (Hons.) in Civil Engineering, University of Kingston, UK, 1978; Honorary Doctorate of Engineering from University of Kingston, 2004 Managing Director, YTL Corporation Berhad 4

6 General Disclosures (continued) Board of Directors of HBAP (continued) # * Xinzhe Li Jennifer Master of Business Administration, The University of British Columbia, Vancouver, Canada, 1994 Bachelor of Arts, Tsinghua University, Beijing, China, 1990 Chief Financial Officer, Baidu, Inc. # independent non-executive Director ^ non-executive Director Country of Residence With the exception of those denoted with an *, all directors reside in Hong Kong. Zia Mody resides in India, Graham John Bradley resides in Australia, Tan Sri Dr Francis Yeoh Sock Ping resides in Malaysia and Xinzhe Li Jennifer resides in China. Communications addressed to the Directors may be sent to: c/o The Hongkong and Shanghai Banking Corporation Limited GPO Box 64 Hong Kong Change in Board of Directors for HBAP Peter James Holland Riley retired as an independent non-executive Director of HBAP on 18 April There have been no other changes in the composition of the Board of Directors since 31 December Credit Rating HBAP has the following long term debt ratings for non-hk$ long-term senior unsecured obligations which are payable in New Zealand in New Zealand dollars: Moody s Investor Service Inc. Standard & Poor s Corporation Current Rating Previous Rating (if changed in the previous two years) Date of Change Aa2 (stable outlook) Not changed - AA- (stable outlook) Not changed - Fitch IBCA Inc. AA- (stable outlook) Not changed - 5

7 Conditions of Registration Conditions of registration for The Hongkong and Shanghai Banking Corporation Limited in New Zealand These conditions of registration apply on and after 1 November The registration of The Hongkong and Shanghai Banking Corporation Limited ( the registered bank ) in New Zealand is subject to the following conditions: 1. That the banking group does not conduct any non-financial activities that in aggregate are material relative to its total activities. In this condition of registration, the meaning of material is based on generally accepted accounting practice. 2. That the banking group s insurance business is not greater than 1% of its total consolidated assets. For the purposes of this condition of registration, the banking group s insurance business is the sum of the following amounts for entities in the banking group: (a) (b) if the business of an entity predominantly consists of insurance business and the entity is not a subsidiary of another entity in the banking group whose business predominantly consists of insurance business, the amount of the insurance business to sum is the total consolidated assets of the group headed by the entity; and if the entity conducts insurance business and its business does not predominantly consist of insurance business and the entity is not a subsidiary of another entity in the banking group whose business predominantly consists of insurance business, the amount of the insurance business to sum is the total liabilities relating to the entity s insurance business plus the equity retained by the entity to meet the solvency or financial soundness needs of its insurance business. In determining the total amount of the banking group s insurance business (a) (b) all amounts must relate to on balance sheet items only, and must comply with generally accepted accounting practice; and if products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of such products or assets must be considered part of the insurance business. For the purposes of this condition of registration, insurance business means the undertaking or assumption of liability as an insurer under a contract of insurance: insurer and contract of insurance have the same meaning as provided in sections 6 and 7 of the Insurance (Prudential Supervision) Act That the business of the registered bank in New Zealand does not constitute a predominant proportion of the total business of the registered bank. 4. That no appointment to the position of the New Zealand chief executive officer of the registered bank shall be made unless: (a) the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and (b) the Reserve Bank has advised that it has no objection to that appointment. 6

8 Conditions of Registration (continued) 5. That The Hongkong and Shanghai Banking Corporation Limited complies with the requirements imposed on it by the Hong Kong Monetary Authority. 6. That, with reference to the following table, each capital adequacy ratio of The Hongkong and Shanghai Banking Corporation Limited must be equal to or greater than the applicable minimum requirement. Capital adequacy ratio Minimum requirement on and after 1 January 2015 Common Equity Tier 1 capital 4.5 % Tier 1 capital 6 % Total capital 8 % For the purposes of this condition of registration, the capital adequacy ratios (a) must be calculated as a percentage of the registered bank s risk weighted assets; and (b) are otherwise as administered by the Hong Kong Monetary Authority. 7. That liabilities of the registered bank in New Zealand, net of amounts due to related parties (including amounts due to a subsidiary or affiliate of the registered bank), do not exceed NZ$15 billion. 8. That, for a loan-to-valuation measurement period, the total of the business of the registered bank in New Zealand s qualifying new mortgage lending amount in respect of APIL with a loan-to-valuation ratio of more than 70%, must not exceed 5% of the total of the qualifying new mortgage lending amount in respect of APIL arising in the loan-to-valuation measurement period. 9. That, for a loan-to-valuation measurement period, the total of the business of the registered bank in New Zealand s qualifying new mortgage lending amount in respect of ANPIL with a loan-to-valuation ratio of more than 80%, must not exceed 10% of the total of the qualifying new mortgage lending amount in respect of ANPIL arising in the loan-tovaluation measurement period That, for a loan-to-valuation measurement period, the total of the business of the registered bank in New Zealand s qualifying new mortgage lending amount in respect of non-auckland loans with a loan-to-valuation ratio of more than 80%, must not exceed 15% of the total of the qualifying new mortgage lending amount in respect of non-auckland loans arising in the loan to valuation measurement period. 11. That the business of the registered bank in New Zealand must not make a residential mortgage loan unless the terms and conditions of the loan contract or the terms and conditions for an associated mortgage require that a borrower obtain the registered bank s agreement before the borrower can grant to another person a charge over the residential property used as security for the loan. 7

9 Conditions of Registration (continued) In these conditions of registration, banking group means the New Zealand business of the registered bank and its subsidiaries as required to be reported in group financial statements for the group s New Zealand business under section 461B(2) of the Financial Markets Conduct Act business of the registered bank in New Zealand means the New Zealand business of the registered bank as defined in the requirement for financial statements for New Zealand business in section 461B(1) of the Financial Markets Conduct Act generally accepted accounting practice has the same meaning as in section 8 of the Financial Reporting Act liabilities of the registered bank in New Zealand means the liabilities that the registered bank would be required to report in financial statements for its New Zealand business if section 461B(1) of the Financial Markets Conduct Act 2013 applied. In conditions of registration 8 to 11, ANPIL, APIL, loan-to-valuation ratio, non-auckland loan, qualifying new mortgage lending amount in respect of [ ] and residential mortgage loan have the same meaning as in the Reserve Bank of New Zealand document entitled Framework for Restrictions on High-LVR Residential Mortgage Lending (BS19) dated November 2015, where the version of the Reserve Bank of New Zealand document Capital Adequacy Framework (Standardised Approach) (BS2A) referred to in BS19 for the purpose of defining these terms is that dated November loan-to-valuation measurement period means a period of six calendar months ending on the last day of the sixth calendar month, the first of which ends on the last day of April Changes to Conditions of Registration since the 31 December 2015 Disclosure Statement There has been no change to the Conditions of Registration. 8

10 Contents Page Statement of Comprehensive Income Statement of Changes in Equity Statement of Financial Position Statement of Cash Flows Statement of Accounting Policies Net trading income Other net operating income Loan impairment charges Related party balances Advances to customers Additional mortgage information Customer deposits Additional financial disclosures on the statement of financial position Segment reporting Asset quality Fair value of financial instruments Concentrations of credit and funding risk Interest rate risk repricing schedule Liquidity risk management Market risk exposures Contingent liabilities and other commitments Insurance and non-financial activities Subsequent events Profitability, size and asset quality of HBAP Group Capital adequacy ratios of HBAP Group Directors and New Zealand Chief Executive Officer s Statements

11 STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2016 Unaudited 6 months ended Dollars in Thousands Note Interest income 91, ,623 Interest expense (50,996) (70,541) Net interest income 40,778 46,082 Net trading income 2 6,168 8,301 Other net operating income 3 16,774 15,783 Net operating income before loan impairment charges 63,720 70,166 Loan impairment (charges) / releases 4 1,339 5,810 Net operating income 65,059 75,976 Operating expenses (32,396 ) (33,085) Operating profit before tax 32,663 42,891 Income tax expense (9,166 ) (12,045) Profit after tax 23,497 30,846 Other comprehensive income / (expense) Items that may be reclassified subsequently to profit or loss: Gains / (losses) on cashflow hedges (1,864) (3,022) Income taxes on cashflow hedges Gains / (losses) on available-for-sale financial assets Income taxes on available-for-sale financial assets (196) (121) Other comprehensive income / (expense) for the period (837 ) (1,863) Total comprehensive income for the period 22,660 28,983 The accompanying notes form part of and should be read in conjunction with these interim financial statements. 10

12 STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2016 Unaudited 6 months ended Dollars in Thousands Head Office Account * At beginning of period 53,793 41,739 Repatriation to Head Office (53,792) (41,739) Profit after tax 23,497 30,846 At end of period 23,498 30,846 Cashflow Hedging Reserve At beginning of period (1,595) 103 Fair value changes taken to equity (3,012) (2,870) Transferred to the income statement 1,148 (152) Tax on movements and transfers At end of period (2,937 ) (2,073) Available-for-Sale Reserve At beginning of period Fair value changes taken to equity 2,750 4,100 Transferred to the income statement (2,049) (3,666) Tax on movements and transfers (196) (121) At end of period 1, Share-based Payment Reserve At beginning of period 1,636 1,622 Transferred to the income statement Movement in respect of share-based payment arrangements (84) (182) At end of period 1,636 1,622 Equity at end of period 23,223 31,193 Represented by: Profit after tax 23,497 30,846 Other comprehensive income / (expense) (837) (1,863) Total comprehensive income for the period 22,660 28,983 Repatriation to Head Office (53,792) (41,739) Movement in share-based payment reserve - - Equity at beginning of period 54,355 43,949 23,223 31,193 * The Head Office account is interest free, repayable at the discretion of the Branch and subordinated to all other debts. The accompanying notes form part of and should be read in conjunction with these interim financial statements. 11

13 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Unaudited Unaudited Audited Dollars in Thousands Note ASSETS Cash and demand balances with central banks 751, , ,799 Advances to banks 6,248 74,918 7,601 Debt and equity securities 527, , ,445 Derivative financial instruments 266, , ,918 Advances to customers 6 3,451,347 3,684,946 3,585,997 Amounts due from related parties 5 352, , ,687 Other assets 16,178 23,559 18,288 Property, plant and equipment 1, Deferred tax asset 1,641 7,356 - Goodwill and intangible assets 15,542 17,229 16,356 Total Assets 5,389,208 6,062,667 5,591,088 LIABILITIES Deposits by banks 208, , ,925 Derivative financial instruments 272, , ,362 Customer deposits 8 3,132,853 3,336,852 3,252,094 Debt securities 420, , ,716 Amounts due to related parties 5 1,296,013 1,312, ,759 Other liabilities 34,847 46,314 36,430 Current tax liabilities 805 2,738 6,871 Deferred tax liablity Total Liabilities 5,365,985 6,031,474 5,536,733 Net Assets 23,223 31,193 54,355 EQUITY Head Office Account 23,498 30,846 53,793 Cashflow Hedging Reserve (2,937) (2,073) (1,595) Available-for-Sale Reserve 1, Share-based Payment Reserve 1,636 1,622 1,636 Total Equity 23,223 31,193 54,355 The accompanying notes form part of and should be read in conjunction with these interim financial statements. 12

14 STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2016 Unaudited 6 months ended Dollars in Thousands Cash flows from / (to) operating activities Interest received 92, ,040 Fees and commissions 16,620 15,816 Realised trading gain 8,569 4,593 Interest paid (51,589) (62,638) Operating expenses (25,028) (23,457) Taxation paid (17,124) (16,000) Net cash flows from / (to) operating activities before changes in operating assets and liabilities 23,658 35,354 Changes in operating assets and liabilities arising from cash flow movements Cash was provided net from / applied net (to): Advances to customers 137,875 98,598 Amounts due from related parties 502,131 (336,185) Other assets 1,229 (2,953) Other liabilities 2,376 4,118 Debt securities issued (427,468) 12,980 Deposits by banks 22,496 32,032 Customer deposits (119,241) 155,918 Amounts due to related parties 393, ,348 Net change in operating assets and liabilities 512, ,856 Net cash flows from / (to) operating activities 536, ,210 Cash flows from / (to) investing activities Debt securities purchased (409,309) (309,105) Debt securities matured 331, ,196 Acquisition of property, plant and equipment (285) (439) Net cash flows from / (to) investing activities (78,594 ) 56,652 Cash flows from / (to) financing activities Repatriation to head office (53,792) (41,739) Net cash flows from / (to) financing activities (53,792 ) (41,739) Net increase / (decrease) in cash and cash equivalents 404, ,123 Effect of exchange rate fluctuations on cash held (1) 3,384 Cash and cash equivalents at beginning of period 352, ,367 Cash and cash equivalents at end of period 757, ,874 13

15 STATEMENT OF CASH FLOWS (continued) FOR THE SIX MONTHS ENDED 30 JUNE 2016 Unaudited 6 months ended Dollars in Thousands Analysis of cash and cash equivalents Cash and demand balances with central banks 751, ,704 Items in the course of collection from other banks 1 2 Advances to banks demand 6,247 74,916 Less: items in the course of transmission to other banks (579) (3,748) 757, ,874 The accompanying notes form part of and should be read in conjunction with these interim financial statements. 14

16 Notes to and forming part of the Interim Financial Statements 1. Statement of Accounting Policies GENERAL ACCOUNTING POLICIES Reporting Entity These interim financial statements are for the New Zealand ( ). Intra-group balances are eliminated in preparing the s interim financial statements (if any). The following entities have been aggregated to form the : The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch HSBC Nominees (New Zealand) Limited This New Zealand incorporated entity is the Branch s nominee company which provides custodian services. HSBC Nominees (New Zealand) Limited is wholly owned by HBAP. Income and expenses of the custodian services business are included in the Branch s financial statements. HSBC Investments New Zealand Limited This New Zealand incorporated entity provided fund management services to customers and commenced trading operations in June HSBC Investments New Zealand Limited (HINZ) was wholly owned by HSBC Asia Pacific Holdings (UK) Limited which is wholly owned by HBAP. The unit trusts for which the Company has acted as Manager were closed on 31 October As a result, the Company ceased trading and was liquidated on 17 February This has had no impact on the financial statements. Basis of Reporting These interim financial statements are prepared and presented in accordance with the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014 (as amended) ( the Order ) and the Reserve Bank of New Zealand Act These interim financial statements have also been prepared in accordance with Generally Accepted Accounting Practice in New Zealand, as appropriate for profit-oriented entities, and are presented in accordance with NZ IAS 34 Interim Financial Reporting ( NZ IAS 34 ). These interim financial statements are condensed financial statements in accordance with NZ IAS 34 and do not include all the disclosures required for full annual financial statements. These financial statements comply with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board. Measurement Base These interim financial statements are based on the general principles of historical cost accounting, as modified by applying fair value accounting to available for sale financial assets, financial assets and financial liabilities at fair value through profit or loss and all financial derivative contracts. They are prepared on a going concern basis and the accrual basis of accounting has been adopted. All amounts are expressed in New Zealand currency. The presentation currency and functional currency, and all references to $ is to New Zealand dollars unless otherwise stated. Particular Accounting Policies The same accounting policies and methods of computation have been followed in these interim financial statements as were applied in the presentation of the Disclosure Statement for the year ended 31 December Comparative Figures These interim financial statements include comparative information as required by NZ IAS 34 and the Order. From 1 January 2016 we have amended the format of the Statement of Comprehensive Income to include loan impairment charges in net operating income. T his format has also been replicated in Note 10 Segment reporting. This aligns with the presentation used by HBAP Group and Group. There has been change to operating profit before tax. 15

17 Notes to and forming part of the Interim Financial Statements 1. Statement of Accounting Policies (continued) Risk Management From 1 January 2016, Group introduced a new liquidity and funding risk framework. It uses the Liquidity Coverage Ratio ( LCR ) and Net Stable Funding Ratio ( NSFR ) regulatory framework as a foundation, but also adds extra metrics, limits and overlays to address risks that are considered not to be adequately reflected by the regulatory framework. The liquidity and funding risk framework is delivered by the using approved risk tolerance limits based on the classification of the s inherent liquidity risk. Apart from the framework changes described above, there has been no material change during the six months ended 30 June 2016 to the s policies for managing risks in relation to credit, currency, interest rates, equity, liquidity or any material business risk to which the is exposed. 16

18 Notes to and forming part of the Interim Financial Statements (continued) Unaudited 6 months ended Dollars in Thousands Net trading income Foreign exchange gains 5,168 5,982 Revaluation of derivatives 1, Credit valuation adjustments on derivatives (710) 1,046 Debit valuation adjustments on derivatives 1,420 1,098 Loss on termination of hedging instrument in cash flow hedge (974) - Gain/ (loss) on hedging instrument in fair value hedge (2,076) (3,547) Gain/ (loss) on hedged item on fair value hedge 2,049 3,667 6,168 8, Other net operating income Fee and commission income 19,054 19,445 Fee and commission expense (2,277) (3,455) Gains/ (losses) on disposal of equipment, fixtures and fittings (3) (207) 16,774 15, Loan impairment charges Individually assessed impairment (charges) / releases New charges Releases Recoveries - (1) - 9, ,669 Collectively assessed impairment (charge) / release 1,339 (3,859) 1,339 5,810 Unaudited Unaudited Audited Dollars in Thousands Related party balances Related party transactions are unsecured and entered into in the normal course of business. During the period there have been dealings between the Branch, HBAP and its subsidiaries and associated companies and other members of the ultimate holding company. Dealings include activities such as funding, accepting deposits, derivative transactions together with management and technical fees. There has been no significant change in the nature or volume of related party transactions during the period. Assets Amounts due from related parties 352, , ,687 Derivative financial instruments assets 114,973 66, ,813 Total related party assets 467, , ,500 Liabilities Amounts due to related parties 1,296,013 1,312, ,759 Derivative financial instruments liabilities 151, , ,530 Total related party liabilities 1,447,123 1,601,615 1,106,289 17

19 Notes to and forming part of the Interim Financial Statements (continued) Unaudited Unaudited Audited Dollars in Thousands Advances to customers Overdrafts 119, , ,564 Mortgages 1,258,094 1,094,053 1,166,623 Term lending 1,962,892 2,335,816 2,158,963 Non-eligible bills 113, , ,192 Money market loans - 5,900 14,500 Total gross advances to customers 3,453,853 3,703,064 3,589,842 Provisions for loan impairment (2,506) (18,118) (3,845) Total net advances to customers 3,451,347 3,684,946 3,585, Additional mortgage information Residential mortgages by loan-to-valuation ratio LVR Range Dollars in millions 30 June 2016 (Unaudited) Does not exceed 80% Unaudited Principal Amount Exceeds 80% and Exceeds not 90% 90% Total $m $m $m $m Value of exposures on balance sheet 1, ,258.1 Value of exposures off balance sheet Total value of exposures 1, ,279.0 Unaudited Unaudited Audited Dollars in Thousands Customer deposits Current accounts 1,874,117 2,031,968 2,034,091 Savings and deposit accounts 1,208,723 1,219,012 1,206,649 Other deposit accounts 50,013 85,872 11,354 Total customer deposits at amortised cost 3,132,853 3,336,852 3,252, Additional financial disclosures on the statement of financial position Total interest earning and discount bearing assets 5,085,212 5,651,389 5,237,245 Total interest and discount bearing liabilities 4,826,048 5,386,395 4,947,793 Total liabilities net of amounts due to related parties 3,918,862 4,429,859 4,430,444 Advances to banks pledged as collateral for liabilities in respect of credit support annex obligation to derivative counterparties

20 Notes to and forming part of the Interim Financial Statements (continued) 10. Segment reporting The s operating segments are organised into three business segments representing the products and services offered to customers. The Executive Committee, formed of senior management of each business unit, acts as the s chief operating decision-maker and assesses the s performance on this basis. Business segments pay and receive interest to and from Global Banking and Markets on an arm s length basis to reflect the allocation of funding costs. The operates primarily in New Zealand and predominately all revenues from and assets held with external customers are generated or held in New Zealand. The does not rely on any single major customer for its revenue base. Business Segments The comprises the following main business segments: Retail Banking and Wealth Management (RBWM) Includes loans, deposits and other transactions with retail customers. Commercial Banking (CMB) Manages the relationships with corporate customers providing loans, deposits and other transactions including trade finance and payment cash management. Global Banking and Markets (GBM) Manages the relationships with institutional customers and undertakes the s treasury and investment banking operations. Reconciling items include income from the investment of interest free funding from HBAP provided to support thin capitalisation ratios and income from the investment of retained profits. Unaudited 6 months ended Total Reportable Reconciling Dollars in Thousands RBWM CMB GBM Segments items Consolidated Net interest income 15,331 20,939 4,765 41,035 (257) 40,778 Net trading income 879 1,703 3,607 6,189 (21) 6,168 Other net operating income (361) 12,984 3,685 16, ,774 Net operating income before impairment 15,849 35,626 12,057 63, ,720 Loan impairment (charges) / release (30) 1,369-1,339-1,339 Net operating income 15,819 36,995 12,057 64, ,059 Operating expenses (11,121) (15,114) (5,404) (31,639) (757) (32,396) Operating profit before tax 4,698 21,881 6,653 33,232 (569) 32,663 Advances to customers 1,285,384 2,165,963-3,451,347-3,451,347 Customer deposits 1,998, , ,253 3,132,853-3,132,853 19

21 Notes to and forming part of the Interim Financial Statements (continued) 10. Segment reporting (continued) Audited 12 months ended Total Reportable Reconciling Dollars in Thousands RBWM CMB GBM Segments items Consolidated Net interest income 29,537 49,246 7,824 86,607 8,429 95,036 Net trading income 2,016 3,765 8,983 14,764 (60) 14,704 Other net operating income ,111 5,662 37,027 (395) 36,632 Net operating income before impairment 31,807 84,122 22, ,398 7, ,372 Loan impairment (charges) / release (572) 35,712-35,140-35,140 Net operating income 31, ,834 22, ,538 7, ,512 Operating expenses (22,529) (29,687) (11,315) (63,531) (310) (63,841) Operating profit before tax 8,706 90,147 11, ,007 7, ,671 Advances to customers 1,202,818 2,383,179-3,585,997-3,585,997 Customer deposits 2,078, , ,613 3,252,094-3,252,094 Unaudited 6 months ended Total Reportable Reconciling Dollars in Thousands RBWM CMB GBM Segments items Consolidated Net interest income 14,576 21,534 5,861 41,971 4,111 46,082 Net trading income 1,039 1,914 5,384 8,337 (36) 8,301 Other net operating income ,874 2,883 15,991 (208) 15,783 Net operating income before impairment 15,849 36,322 14,128 66,299 3,867 70,166 Loan impairment (charges) / release 42 5,768-5,810-5,810 Net operating income 15,891 42,090 14,128 72,109 3,867 75,976 Operating expenses (11,012) (15,117) (6,722) (32,851) (234) (33,085) Operating profit before tax 4,879 26,973 7,406 39,258 3,633 42,891 Advances to customers 1,135,735 2,549,211-3,684,946-3,684,946 Customer deposits 2,186, , ,614 3,336,852-3,336,852 20

22 Notes to and forming part of the Interim Financial Statements (continued) 11. Asset quality Unaudited Unaudited Audited Dollars in Thousands In the current and prior periods, there is only one class of impaired financial assets, being advances to customers. Past due but not impaired Less than 30 days 44,307 39,907 61,127 At least 30 days but less than 60 days At least 60 days but less than 90 days 1, ,274 At least 90 days or more Carrying amount 46,137 40,508 65,105 Gross individually impaired assets 1 Balance at the beginning of the period 3, , ,913 Transfers from performing 412 1,650 2,110 Transfers to performing - - (21,686) Write-offs - (1) (441) Repayment (353) (47,798) (98,393) Balance at the end of the period 3,562 75,764 3,503 Individual provision for loan impairment Balance at the beginning of the period ,720 20,720 New and additional provisions charged to profit or loss Provisions released during the period to profit or loss - (9,578) (17,932) Write-offs - (1) (472) Discount unwind 2 - (2,117) (2,233) Balance at the end of the period 865 9, Collective provision for loan impairment Balance at the beginning of the period 2,980 5,234 5,234 Charges / (releases) during the year to profit or loss (1,339) 3,859 (2,254) Balance at the end of the period 1,641 9,093 2,980 Total provisions for loan impairment 2,506 18,118 3,845 1 Gross individually impaired assets is the pre-allowance balance of individually impaired assets. The actual impairment is reflected within the individual provision for loan impairment as doubtful debts of the gross individually impaired assets. 2 The impairment loss on an impaired asset is calculated as the difference between the asset s carrying amount and the estimated future cash flows discounted to its present value using the original effective interest rate for the asset. This discount unwinds as interest income over the period the asset is held. There are no restructured assets, assets acquired through the enforcement of security or assets under administration as at 30 June 2016 (June 2015: nil; December 2105: nil). The aggregate amount as at 30 June 2016 of any undrawn balances on lending commitments to counterparties for whom drawn balances are classified as individually impaired, before deducting allowances for credit impairment loss where applicable, is $13 thousand (June 2015: $17.6m; December 2015: $10 thousand). 21

23 Notes to and forming part of the Interim Financial Statements (continued) 12. Fair value of financial instruments Determination of fair value of financial instruments carried at fair value Fair values are determined according to the following hierarchy: Level 1 quoted market price Financial instruments with quoted prices for identical instruments in active markets. Level 2 valuation technique using observable inputs Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable. Level 3- valuation technique with significant unobservable inputs Financial instruments valued using valuation techniques where one or more significant inputs are unobservable. The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used. The judgement as to whether a market is active may include, but is not restricted to, the consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid / offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the instrument requires additional work during the valuation process. The tables below provide an analysis of the various bases described above which have been deployed for valuing financial assets and financial liabilities measured at fair value. Unaudited Unaudited Unaudited Unaudited Dollars in Thousands Level 1 Level 2 Level 3 TOTAL ASSETS Debt and equity securities 402, , ,048 Derivatives financial instruments - 266, ,141 LIABILITIES Derivatives financial instruments - 272, ,703 Unaudited Unaudited Unaudited Unaudited Dollars in Thousands Level 1 Level 2 Level 3 TOTAL ASSETS Debt and equity securities 280, , ,686 Derivatives financial instruments - 359, ,594 LIABILITIES Derivatives financial instruments - 356, ,519 22

24 Notes to and forming part of the Interim Financial Statements (continued) 12. Fair value of financial instruments (continued) Audited Audited Audited Audited Dollars in Thousands Level 1 Level 2 Level 3 TOTAL ASSETS Debt and equity securities 314, , ,445 Derivatives financial instruments - 313, ,918 LIABILITIES Derivatives financial instruments - 314, ,362 There have been no transfers between levels 1 and 2 in the period to 30 June 2016 (June 2015: none; December 2015: none). Any transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period. Methodologies The methodologies and assumptions used when determining fair value depend on the terms and risk characteristics of the various instruments and include the following: Cash and demand balances with central banks For cash and short - term funds the carrying amount is equivalent to the fair value. Debt securities issued Fair value for certificates of deposit and medium term notes issued with maturities less than six months is approximated to be the carrying value. For certificates of deposit and medium term notes issued with a maturity greater than six months but less than a year, fair value is determined by using discounted cash flow methods using the interest rates applicable to financial instruments of similar maturity. Inputs applied in getting the fair value of debt securities between 6 and 12 months are observable market-corroborated inputs which include interest rates and forward curves observable at commonly reported intervals, and credit spreads. Debt securities greater than 12 months are fair valued using market-corroborated swap rates. Debt securities For available-for-sale securities that are quoted in active markets, fair values are determined by reference to the current quoted bid/offer price. Where quoted market prices are not available, fair value is determined with reference to quoted prices for similar instruments in active markets, or through the use of a valuation model where inputs are observable. Advances to customers, advances to banks, and amounts due from related parties Fair values of advances to customers, advances to banks, and amounts due from related parties with maturities of six months or longer have been estimated by discounting cashflows up to the next repricing date with reference to current rates at which similar loans and advances would be made to other borrowers with a similar credit rating and the same maturities. The fair values of advances to customers, advances to banks, and amounts due from related parties with maturities less than six months are approximated to be the carrying value. 23

25 Notes to and forming part of the Interim Financial Statements (continued) 12. Fair value of financial instruments (continued) Methodologies Deposits, other accounts and amounts due to related parties The fair values of deposits and other liabilities with maturities of less than six months are approximated to be the carrying amount. For liabilities with maturities of six months or longer, fair values have been based on quoted market prices, where such prices exist. Otherwise, fair values have been estimated by reference to rates currently offered by the for similar liabilities of similar maturities. Derivative financial instruments The fair values of exchange rate and interest rate contracts were obtained from quoted market prices or discounted cash flow models. Inputs applied in getting the fair value of derivative financial instruments are observable marketcorroborated inputs which include interest rates and forward curves observable at commonly reported intervals where required. Other assets and other liabilities For other assets and other liabilities the carrying amount is considered to be the fair value. Fair value of financial instruments not carried at fair value The following tables summarise the carrying values and fair values of financial assets and financial liabilities not measured at fair value in the at the end of the current and comparative periods. Dollars in Thousands Unaudited Carrying Value Unaudited Fair Value Unaudited Carrying Value Unaudited Audited Fair Value Carrying Value Audited Fair Value ASSETS Advances to customers 3,451,347 3,458,767 3,684,946 3,700,249 3,585,997 3,596,102 LIABILITIES Customer deposits 3,132,853 3,135,626 3,336,852 3,339,067 3,252,094 3,255,055 Debt securities issued 420, , , , , ,732 Amounts due to related parties 1,296,013 1,302,190 1,312,778 1,313, , ,005 Other financial instruments not carried at fair value are typically short-term in nature and reprice to the current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. This includes cash and demand balances with central banks, advances to banks and deposits by banks, other assets and other liabilities. 24

26 Notes to and forming part of the Interim Financial Statements (continued) 13. Concentrations of credit and funding risk The maximum credit risk of on-balance sheet financial assets is best represented by the carrying amount of the assets, net of any provision for credit impairment. The credit risk exposure does not take into account the fair value of any collateral, in the event of other parties failing to perform their obligations under financial instruments. Unaudited Dollars in Thousands On-balance sheet credit exposures Cash and demand balances with central banks 751,391 Advances to banks 6,248 Debt and equity securities 527,048 Derivative financial instruments 266,141 Advances to customers 3,451,347 Amounts due from related parties 352,571 Other assets 15,834 5,370,580 Off-balance sheet credit exposures 2,285,942 Total credit exposures 7,656,522 Concentrations of credit risk exist if a number of counterparties are engaged in similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The following analysis of financial assets by industry sector is based on categories and definitions used by the Hong Kong Monetary Authority: Concentrations of credit risk by industry Individual 1,511,403 Commercial and industrial 2,328,935 Commercial real estate and construction 805,108 Banks and financial institutions 2,186,367 Agriculture, forestry and mining 59,297 Transport 144,079 Energy 89,827 Government 74,512 Other 456,994 7,656,522 Concentrations of credit risk by geographical area New Zealand 6,464,543 Hong Kong 352,025 Australia 248,385 China 118,788 Great Britain 91,440 United States 217,372 Other Overseas 163,969 7,656,522 25

27 Notes to and forming part of the Interim Financial Statements (continued) 13. Concentrations of credit and funding risk (continued) Concentration of Credit Exposures to Individual counterparties The has no credit exposures equal to or in excess of 10% of HBAP Group s equity, during the current reporting period and the previous corresponding periods. These exposures are based on actual credit exposures and do not include exposures to counterparties if they are booked outside of New Zealand. Unaudited Dollars in Thousands Concentrations of funding Concentrations of funding by product Deposits by banks 208,549 Customer deposits 3,132,853 Debt securities 420,215 Amounts due to related parties 1,296,013 5,057,630 Concentrations of funding by industry Agriculture, forestry, fishing and mining 51,019 Manufacturing 241,235 Wholesale and retail trade 135,257 Accommodation and restaurants 55,444 Banking and finance 2,060,164 Property and business services 266,026 Individual 2,064,558 Other 183,927 5,057,630 Concentrations of funding by geographical area New Zealand 2,337,646 China 349,154 Great Britain 181,270 Hong Kong 1,512,034 Japan 124,196 Singapore 68,686 Taiwan 58,726 United States 169,189 Other Overseas 256,729 5,057,630 26

28 Notes to and forming part of the Interim Financial Statements (continued) 14. Interest rate risk repricing schedule The table below analyses the s financial assets and financial liabilities into relevant maturity groupings based on the earlier of residual contractual maturity or next interest repricing date. Dollars in Millions Up to 3 months Over 3 months and up to 6 months Over 6 months and up to 1 year Over 1 year and up to 2 years Over 2 years Total interest bearing Non interest bearing Total 30 June 2016 (Unaudited) Assets Cash and demand balances with central banks Advances to banks Debt and equity securities Derivative financial instruments Advances to customers 2, ,451-3,451 Amounts due from related parties Other assets Total financial assets 3, , ,370 Liabilities Deposits by banks Derivative financial instruments Customer deposits 2, , ,133 Debt securities Amounts due to related parties 1, , ,296 Other liabilities Total financial liabilities 4, , ,365 Off-balance sheet financial instruments Net notional interest rate contracts (10) (202) (127) (20) - (20) 15. Liquidity risk management Liquidity risk is the risk that the does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. This risk arises from mismatches in the timing of cash flows. Liquid assets are assets which are readily convertible to cash to meet the s liquidity requirement. Liquid assets consist of demand balances with the central bank, treasury bills, government and local government bonds and registered certificates of deposits issued by other banks. The holds the following liquid assets in order to manage its liquidity risk: Unaudited Unaudited Audited Dollars in Thousands Demand balances with the central bank 751, , ,799 Available-for-sale debt securities and treasury bills 427, , ,506 1,178,492 1,090, ,305 27

29 Notes to and forming part of the Interim Financial Statements (continued) 15. Liquidity risk management (continued) Maturity Analysis The table below analyses the s assets and liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. No On Over 5 specific Dollars in Millions Demand month months months years years maturity Total 30 June 2016 (Unaudited) Assets Cash and demand balances with central banks Advances to banks Debt and equity securities Advances to customers ,503 1,127-3,451 Amounts due from related parties Other assets Deferred taxation Intangible assets Fixed assets Total 1, ,858 1, ,123 Derivative financial instruments inflow ,016-3,463 Derivative financial instruments (outflow) - (283) - (141) (841) (1,932) - (3,197) Derivative financial instruments - assets Liabilities Deposits by banks Customer deposits 1, ,133 Debt securities Amounts due to related parties ,296 Other liabilities Current taxation Total 2, , ,093 Derivative financial instruments (inflow) - (283) - (141) (841) (1,931) - (3,196) Derivative financial instruments outflow ,014-3,469 Derivative financial instruments liabilities Net assets (1,387) 35 (153) (244) 627 1,

30 Notes to and forming part of the Interim Financial Statements (continued) 15. Liquidity risk management (continued) Maturity Analysis undiscounted cashflows basis The table below analyses the s financial assets and liabilities into relevant maturity groupings based on their remaining contractual maturities. The amounts in the table below represent all cash flows relating to principal and future interest payments on an undiscounted basis. Therefore they may differ to the carrying amounts on the Statement of Financial Position. The does not manage its liquidity risk on the basis of information below. No On Over 5 specific Dollars in Millions Demand month months months years years maturity Total 30 June 2016 (Unaudited) Financial Assets Cash and demand balances with central banks Advances to banks Debt and equity securities Advances to customers ,827 1,975-4,744 Amounts due from related parties Other assets Total non-derivative financial assets 1, ,210 1,975-6,442 Derivative financial instruments held for trading purposes Derivative financial instruments held for hedging purposes (net settled) Inflow / (outflow) Total undiscounted financial assets 1, ,210 1,975-6,707 Financial Liabilities Deposits by banks Customer deposits 1, ,163 Debt securities Amounts due to related parties ,323 Other liabilities Total non-derivative financial liabilities 2, , ,167 Derivative financial instruments held for trading purposes Derivative financial instruments held for hedging purposes (net settled) (Inflow) / outflow Total undiscounted financial liabilities 2, , ,439 Undrawn loan commitments 614-1, ,818 29

31 Notes to and forming part of the Interim Financial Statements (continued) 16. Market risk exposures Aggregate market risk exposures are derived in accordance with the Capital Adequacy Framework (Standardised Approach) (BS2A) as stated in clauses 2 to 4 of Schedule 9 to the Order. The period end exposure is the exposure as at the end of the period reported. The peak exposure is the peak endof-day market risk exposure over the half year accounting period at the close of each business day. The peak is calculated separately for each category of exposure and may not have occurred at the same time. Dollars in Millions Implied risk weighted exposure Notional capital charge End-of-period exposure at 30 June 2016 (Unaudited) Interest rate risk Foreign currency risk Equity risk - - Peak end-of-day exposure period 1 January 2016 to 30 June 2016 (Unaudited) Interest rate risk Foreign currency risk Equity risk Contingent liabilities and other commitments Contingent liabilities Contingent liabilities and commitments are credit-related instruments which include letters of credit, guarantees and commitments to extend credit. The amounts below represent the amount at risk should contracts be fully drawn upon and clients default. Unaudited Unaudited Audited Dollars in Thousands Direct credit substitutes 60,468 63,496 60,454 Transaction related contingent items 272, , ,588 Trade related contingent items 126, , ,684 Commitments, maturity one year or more 1,062,793 1,196,729 1,144,938 Commitments, maturity up to one year 763, , ,441 2,285,942 2,295,412 2,336,105 Capital commitments Contracted expenditure Capital commitments relate to the purchase of equipment. 18. Insurance and non-financial activities The does not conduct any insurance business or non-financial activities in New Zealand. 19. Subsequent events There were no events subsequent to the balance sheet date which would materially affect the interim financial statements. 30

32 Notes to and forming part of the Interim Financial Statements (continued) 20. Profitability, size and asset quality of HBAP Group Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended Dollars in HK$ millions Profitability Net profit after tax 43,245 59,902 99,983 Net profit after tax over the previous 12 month period 1.1% 1 1.5% 1 1.4% 1 as a percentage of average total assets Size Total assets 7,404,171 7,167,665 6,953,683 Percentage increase in total assets over the previous 12 month 3.3% 5.9% 1.1% period Asset quality Individually impaired assets Not Available 2 15,323 16,786 Individual impairment provision against advances to customers (7,862) (6,590) (7,040) Collective impairment provision against advances to customers (4,868) (4,247) (4,489) Individually impaired assets / total assets Not Available 2 0.2% 0.2% Individual impairment provision / individually impaired assets Not Available % 41.9% 1 Average total assets for HBAP Group is not publicly available. This calculation uses a two-point average of total assets as at the end of the reported period and the comparative period ended 12 months earlier. 2 At the date of signing this Disclosure Statement, the amount of HBAP Group individually impaired assets as at 30 June 2016 was not publicly available. 31

33 Notes to and forming part of the Interim Financial Statements (continued) 21. Capital adequacy ratios of HBAP Group HBAP Group is subject to the capital requirements as specified by the Hong Kong Monetary Authority (HKMA). HBAP Group uses the advanced internal ratings-based approach to calculate its credit risk for the majority of its non-securitisation exposures and the internal ratings-based (securitisation) approach to determine credit risk for its banking book securitisation exposures. For market risk, HBAP Group uses an internal models approach to calculate its general market risk for the risk categories of interest rate exposures, foreign exchange (including gold) exposures and equity exposures. HBAP Group also uses an internal models approach to calculate its market risk in respect of specific risk for interest rate exposures and equity exposures. HBAP Group uses the standardised (market risk) approach for calculating other market risk positions as well as trading book securitisation exposures, and the standardised (operational risk) approach to calculate its operational risk. The capital requirements of HKMA are at least equal to those specified under the Basel framework ( Basel III ). HBAP Group exceeds the minimum capital ratio requirements as specified by the HKMA as at 30 June The capital adequacy disclosure made by the HBAP Group can be found in the Annual Report and Accounts at this website, HBAP Group reported the following capital adequacy ratios under Basel III, which were the most recent publicly available information: Unaudited Unaudited Unaudited Basel III Capital Ratios Common Equity Tier 1 (CET1) capital 16.1% 14.3% 15.6% Tier 1 capital 17.3% 15.3% 16.6% Total capital 19.2% 17.4% 18.6% The capital ratios for HBAP, as a stand-alone entity, are not publicly available. 32

34 Directors and New Zealand Chief Executive Officer s Statements Each Director and the New Zealand Chief Executive Officer believes, after due enquiry by them, that: The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014 (as amended); The Disclosure Statement is not false or misleading; as at the date on which the Disclosure Statement is signed; and each Director and the New Zealand Chief Executive Officer believes, after due enquiry by them, that: the Branch had systems in place to monitor and control adequately the material risks of the including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and other business risks, and that those systems were being properly applied; and the Registered Bank has complied with all Conditions of Registration that applied; over the six months ended 30 June This Disclosure Statement has been signed for and on behalf of the Directors of The Hongkong and Shanghai Banking Corporation Limited (as listed on pages 3 to 5) by their attorney, Christopher David Gosse Russell, and also in his capacity as Chief Executive Officer: Christopher David Gosse Russell Chief Executive Officer New Zealand Branch 26 August 2016 It is confirmed that the said powers of attorney appointing Christopher David Gosse Russell are still in force and have not been revoked. 33

35 Independent Auditors Review Report To the Directors of The Hongkong and Shanghai Banking Corporation Limited Report on the Financial Statements We have reviewed pages 10 to 32 of the half year Disclosure Statement of The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch (the Branch ), which consists of the financial statements required by Clause 26 of the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014 (as amended) (the Order ) and the supplementary information required by Schedules 5, 7, 9, 10, 12 and 14 of the Order. The financial statements comprise the statement of financial position as at 30 June 2016, the statement of comprehensive income, the statement of changes in equity and statement of cash flows for the six months then ended, and the notes to the financial statements that include a statement of accounting policies and selected explanatory information for the. The comprises the New Zealand operations of The Hongkong and Shanghai Banking Corporation Limited. Directors' Responsibility for the Financial Statements The Directors are responsible on behalf of The Hongkong and Shanghai Banking Corporation Limited (the Directors ) for the preparation and presentation of the half year Disclosure Statement, which includes financial statements prepared in accordance with Clause 26 of the Order and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In addition, the Directors are responsible for the preparation and presentation of supplementary information in the half year Disclosure Statement which complies with Schedules 3, 5, 7, 9, 10, 12 and 14 of the Order. Our Responsibility Our responsibility is to express a conclusion on the accompanying financial statements and the supplementary information, disclosed in accordance with Clause 26 and Schedules 5, 7, 9, 10, 12 and 14 of the Order, presented by the Directors, based on our review. Our responsibility is to express a conclusion on the financial statements whether, in our opinion on the basis of the procedures performed by us, anything has come to our attention that would cause us to believe that the financial statements have not been prepared, in all material respects, in accordance with New Zealand Equivalent to International Accounting Standard 34: Interim Financial Reporting and International Accounting Standard 34: Interim Financial Reporting. Our responsibility is to express a conclusion on the supplementary information (excluding the supplementary information relating to credit and market risk exposures and capital adequacy) whether, in our opinion on the basis of the procedures performed by us, anything has come to our attention that would cause us to believe that the supplementary information does not fairly state the matters to which it relates in accordance with Schedules 5, 7, 10, 12 and 14 of the Order. Our responsibility is to express a conclusion on the supplementary information relating to credit and market risk exposures and capital adequacy whether in our opinion on the basis of the procedures performed by us, anything has come to our attention that would cause us to believe that the supplementary information is not in all material respects: (a) (b) prepared in accordance with Capital Adequacy Framework (Standardised Approach) (BS2A); and disclosed in accordance with Schedule 9 of the Order. PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) , F: +64 (9) ,

36 Independent Auditors Review Report The Hongkong and Shanghai Banking Corporation Limited We conducted our review in accordance with the New Zealand Standard on Review Engagements 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity ( NZ SRE 2410 ). As the auditors of the, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements. A review of financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. Accordingly we do not express an audit opinion on this half year Disclosure Statement. We are independent of the. We carry out other assignments on behalf of the in the areas of taxation, immigration advisory and other assurance services. In addition, certain partners and employees of our firm may deal with the on normal terms within the ordinary course of trading activities of the. These matters have not impaired our independence as auditors of the. Conclusion Based on our review, nothing has come to our attention that causes us to believe that: (a) (b) (c) the financial statements on pages 10 to 32 (excluding the supplementary information) have not been prepared, in all material respects, in accordance with New Zealand Equivalent to International Accounting Standard 34: Interim Financial Reporting and International Accounting Standard 34: Interim Financial Reporting; the supplementary information prescribed by Schedules 5, 7, 10, 12 and 14 of the Order, does not fairly state the matters to which it relates in accordance with those Schedules; and the supplementary information relating to credit and market risk exposures and capital adequacy prescribed by Schedule 9 of the Order, is not, in all material respects: (i) prepared in accordance with Capital Adequacy Framework (Standardised Approach) (BS2A); and (ii) disclosed in accordance with Schedule 9 of the Order. Restriction on Use of Our Report This report is made solely to the Directors, as a body. Our review work has been undertaken so that we might state to the Directors those matters which we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the and the Directors, as a body, for our review procedures, for this report or for the conclusions we have formed. Chartered Accountants 26 August 2016 Auckland 35